T-bills and savings bonds in California: the tax-equivalent yield
California cannot tax the interest on Treasury bills or savings bonds, and with brackets that climb to 13.3 % the exemption is worth more here than almost anywhere.
A CD or savings account in California must pay
4.958 %
to match 4.351 % from a T-bill or savings bond, which California cannot tax.
| Federal marginal rate (2026 brackets) | 24 % |
| California marginal rate (2025 schedule) | 9.30 % |
| State and local tax saved per $10,000 a year | $40.46 |
Worked out by Radif Partners · How we calculate · schedule read on the California revenue department site, tax year 2025
A single Californian with $150,000 of taxable income pays 9.3 % to the state on each extra dollar of bank interest, on top of a 24 % federal rate. The 26-week Treasury bill auctioned on October 13, 2026 yields 4.351 %, and that interest is outside California income tax by federal law. To leave as much after both taxes, a certificate of deposit or high-yield savings account would have to pay 4.958 %. Put differently, every $10,000 held in T-bills or savings bonds for a year at that yield keeps $40.46 of state tax in your pocket. The rates come from the 2025 California schedule, because the Franchise Tax Board had not published its indexed 2026 schedule when we read it; the thresholds will move up a little once it does, the rates will not. The 1 % Mental Health Services Tax on income above $1,000,000 is already built into the top brackets shown below.
Ten brackets from the 2025 Form 540 booklet
California publishes separate schedules for single filers and for married couples filing jointly. The joint thresholds are close to twice the single ones, so a couple rarely pays a higher rate than a single person with half the income. The table gives the point where each rate begins. Only the last dollar of interest matters for a comparison with a CD, so find the row your taxable income falls in and read the rate on its left.
| Rate | Single, from | Married filing jointly, from |
|---|---|---|
| 1 % | $0 | $0 |
| 2 % | $11,079 | $22,158 |
| 4 % | $26,264 | $52,528 |
| 6 % | $41,452 | $82,904 |
| 8 % | $57,542 | $115,084 |
| 9.3 % | $72,724 | $145,448 |
| 10.3 % | $371,479 | $742,958 |
| 11.3 % | $445,771 | $891,542 |
| 12.3 % | $742,953 | $1,000,000 |
| 13.3 % | $1,000,000 | $1,485,906 |
Why 2025? The Franchise Tax Board indexes its thresholds each year for inflation, and its 2026 schedule was still not posted when we checked on October 19, 2026. Until it is, the latest published schedule is the honest reference. Indexing moves the thresholds by a few percent and leaves the rates unchanged, so for most incomes the marginal rate, the only figure the comparison uses, stays the same.
The long 9.3 % band
Most savers with a comfortable income land in the same row. For a single filer the 9.3 % rate runs from $72,724 all the way to $371,479; on a joint return it covers $145,448 to $742,958. That stretch is unusually wide, which means a nurse, an engineer and a retired couple living on a pension can all face the same state rate on their bank interest. For each of them the federal exemption of Treasury interest from state tax (31 U.S.C. 3124, U.S. Code) removes the same slice of tax.
One million dollars and the Mental Health Services Tax
California adds 1 % on taxable income above $1,000,000, whatever the filing status. In the single schedule it creates the last row, 13.3 %. In the joint schedule it lands inside a bracket: the 11.3 % rate becomes 12.3 % at $1,000,000. With it, California has the highest top rate of the 50 states and the District of Columbia in our table. For a household at that level, every $10,000 of T-bill interest instead of CD interest at 4.351 % avoids $57.87 of state tax.
Two Californians, two answers
A single teacher in Fresno with $60,000 of taxable income sits in the 8 % bracket and the 22 % federal one. Her CD would need 4.848 % to equal the T-bill. A single physician in San Diego at $520,000 pays 11.3 % to the state and 35 % to Washington; his break-even CD rate is 5.267 %. The gap between the two equivalents is the whole story: the higher the bracket, the more a taxable yield must offer before it beats a Treasury.
Break-even CD rate at a higher California income
A CD or savings account in California must pay
5.267 %
| Federal marginal rate (2026 brackets) | 35 % |
| California marginal rate (2025 schedule) | 11.30 % |
| State and local tax saved per $10,000 a year | $49.17 |
Where it shows on the return
Your federal return includes all the interest. California starts from federal income, so the Treasury interest has to come back out: it is subtracted on Schedule CA (540), the form where California adjusts federal amounts. Savings bond interest reported in the year you cash a bond gets the same treatment. California has no city or county income tax that reaches interest; the business taxes of San Francisco and other cities fall on payroll and receipts. For yields beyond the 26-week bill, see all current T-bill rates, and for a fuller look at the trade-off, T-bills against CDs.